Yuan Gains Double in 2007

The yuan rose and ended the year with a 7 percent advance, as strategists raised their forecasts after China's central bank signaled faster gains are needed to cool the economy.

The currency advanced twice as fast as in 2006 as policy makers sought to curb inflation and cut a record trade surplus that has strained ties with the U.S. and Europe. It gained 0.9 percent this week, prompting ING Bank NV, Deutsche Bank AG and Lehman Brothers Holdings Inc. to adopt more aggressive yuan predictions, Bloomberg surveys show.

The yuan rose 0.18 percent to 7.3041 per dollar as of the 5:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. The currency's gain this week was the biggest since the end of a dollar peg in July, 2005. The yuan touched 7.3015 per dollar, the strongest since the end of the link.

China's trade surplus, which surged 52 percent in the 11 months through November to $238.1 billion, has driven foreign- exchange reserves to a record $1.46 trillion, making it difficult for the government to slow growth and tame asset-price inflation.

While the yuan gained against the dollar this year, it dropped against 8 of the world's 17 most-active currencies. It slid 3.6 percent against the euro, 10 percent versus the Canadian dollar and 12 percent against the Brazilian real, pushing up import costs.

China's central bank this month raised rates for a sixth time this year to rein in credit growth, and lifted the reserve ratio to the highest in at least 20 years. The economy expanded 11.5 percent in the third quarter and consumer prices rose 6.9 percent in November from a year-earlier.

TradingEconomics.com, Bloomberg12/31/2007 7:56:17 AM

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